Dollar volatility likely around election

Will USD remain safe haven if election turns sour?

Currency markets will naturally be very volatile over the next couple of days and while the dollar will bear the brunt of much of this, the impact will be felt further afield. The dollar’s role as a safe haven has been clear for all to see, this year in particular, to the detriment of gold. It will be interesting to see if that continues this week given that the US would be at the centre of the uncertainty.

It will be interesting to keep tabs on the other safe haven currencies over the next couple of days as we look to take the pulse of traders as the results appear. On the flip side, AUD, CAD and NZD could do well if markets are satisfied with the outcome, meaning a potential downside risk for the markets has passed without too much disruption.

The yuan will be another interesting one to watch, given the Trump administration’s increasingly hawkish approach towards China. A Biden victory should be quite good for the currency, even if Biden can’t politically afford to go easy on them. You would expect to see less unilateral action from the US though, which should suit the currency.

There isn’t much to update on the Brexit side which means the pound is continuing to consolidate around 1.30. It’s making decent gains against the dollar today although they are primarily being driven by the latter. I remain optimistic that a deal will be reached and I think it’s probably quite heavily priced in at this point.

The Fed and BoE both hold policy meetings on  Thursday, and these events are huge, given the role that central banks have to play in the final weeks of the year. Another key event is the US nonfarm payrolls report on Friday. This release has fallen off the radar, with all the attention focused on the election. However, if the election results are uncontested, the markets will be able to shift attention to this key release.

For a look at all of today’s economic events, check out our economic calendar.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam